PriceSmart Beats on Q2 Earnings; Comps Soft - Analyst Blog

Retail warehouse stores operator, PriceSmart, Inc. PSMT beat the Zacks Consensus Estimate for earnings while delivering in-line revenues for the second quarter of fiscal 2014 helped only by some special gains. Comps and margins, however, remained soft during the quarter.

Quarter Details

The Zacks Rank #4 (Sell) company reported adjusted earnings of 93 cents per share in the second quarter of fiscal 2014 (ended Feb 28, 2014), beating the Zacks Consensus Estimate of 87 cents by almost 7%. Earnings grew 13.4% from the prior-year quarter. Foreign exchange transaction gains and lower interest expenses pulled up earnings in the quarter.

The company reported total revenue of $674.4 million in the first quarter, up 11.0% from the prior-year quarter. Revenues were almost in line with the Zacks Consensus Estimate of $675 million.

Net warehouse club sales increased 11.0% to $657.2 million in the quarter. Membership income increased 13.9% to $9.5 million in the reported quarter.

Comps grew 6.7% in the quarter, weaker than 7.9%, 9.3% and 9.2% in the first quarter of 2014 and fourth and third quarters of fiscal 2013, respectively. PriceSmart's comps have been declining since Oct 2013 due to slowing consumer traffic. We believe severe winter affected traffic further in the second quarter.

Warehouse gross profit margin decreased 19 basis points (bps) to 14.5% in the quarter due to decline in warehouse club margins. Operating income was $39.4 million, up 8.2% year over year. However, operating margin decreased 16 bps due to reduction in net warehouse margins.

March 2014 Results

Concurrent with the second-quarter results, PriceSmart also announced net and comparable warehouse club sales for the month of March. Net warehouse club sales for the month grew 5.7% to $203.2 million.

Further, PriceSmart reported 1.9% growth in comps for 32 warehouse clubs for the four weeks ended Mar 30, 2014. March comps are significantly lower than 6.7%, 8.4% and 5.3% reported in Dec 2013, Jan 2014 and Feb 2014, respectively.

PriceSmart is involved in the operation of membership shopping warehouses in international markets. It had 32 warehouse clubs in operation at the end of Mar 2014.

Other Stocks to Consider

Better-ranked stocks in the retail sector are Foot Locker, Inc. FL, American Apparel, Inc. APP and Belle International Holdings Limited (BELLY). All the stocks carry a Zacks Rank #2 (Buy).